How to set a budget (and maintain it!)

Q: How do you set a budget? I have never, ever done that and don’t understand how to get started. I would really like to get on one.

Hello Robin!

Here are my tips on how to set a budget. We didn’t have much of a budget when we were first married. But we certainly had to tighten up a bit when we had our first child (having kids changes EVERYTHING). I’m sure everyone has a different process for setting a budget, but here’s what we did…and continue to do every time our situation changes (we move, have another child, etc.):

We make a spreadsheet in Google Docs. We do it there so it’s online and we can access it from anywhere, including our cell phones. It’s nice having it online because if your computer crashes, you won’t lose your hard work.

At the top of the sheet we put our total monthly income AFTER taxes; basically every dollar we bring home from our paychecks for the month. If it changes month to month, we average. Tip…BE ACCURATE!

We then work down the column and below our total, make a list of all our SET bills first (mortgage, insurance, car payment, etc.; things that don’t really change month to month). Get out your credit card and bank statements to make sure you don’t miss anything. We tried to stay pretty accurate, but also rounded up to the nearest dollar.

After bills, we did average regular expenses(groceries, gas, utilities, spending money, gifts for people, etc.; basically everything else you regularly spend money on that is variable from month to month). If there is something regular that you do but it’s only every few months (like getting your hair cut/colored, for example), put it down in full – don’t break it up monthly. It’s hard to plan ahead for those expenses and you pay for them in full, so you need to budget for them in full! If you DON’T pay for them in full (if it’s a monthly payment, for example) then it should go in the “bills” category because it’s a regular, consistent monthly expense.

After that, we did all the unexpected expenses from the last month (unexpected medical bills, car repairs, home repairs, etc.). Label the exact amount you paid out for that unexpected expense.

What you need to do is use the functions button to add up all the money you spent last month…

(Function button)

Here is a fake example of an expenses sheet (click to see it bigger)

Hit SUM and then highlight the boxes of all your expenses…

…then hit enter and it will total it up for you. This is how much you spent last month. (highlighted in the blue box)

…and subtract it from your take-home income.

Hit enter and this will give you the dollar amount of how much you have left over at the end of each month. In this case it’s $252.00

To be honest, the first time we did this we were in the hole by about $100 and had no idea.

Guess what?

You stay in the hole for long and you will go bankrupt.

Scary, huh?

The good news? Discipline is a beautiful thing!

So now that you have a budget, what’s next?

This post is mostly about setting a budget, but here are a few quick tips on how to keep a budget once you have one:

Once you know what you spend and how much you have left over (if any), now you can crack down and start tightening your belt. Get rid of things you don’t need (cable, getting your nails done, a cleaning lady, eating out, etc.) You will be shocked at how much you can save if you just sacrifice a little.

Still don’t have enough? You need to solve that. QUICK. Find ways to make extra money. Babysit. Pick up a part-time job. Sell something. Do odd jobs. Whatever it is, better hurry. Overspending each month is serious and life-threatening in the fact that you WILL start to lose important things like your house, car, etc. Don’t play with fire or you will get burned!

Got money left over at the end of the month? Good for you! That’s tough to do! Now make a plan for that money so it goes to the best possible use. Stick it in a separate savings account or fund and make a definite plan for what it’s going for. Remember, you should have 6 months worth of income stored in savings for a rainy day. Don’t touch it until you’ve got that reserve. After that, have fun!

Just remember that the sacrifices you make don’t have to be forever. Just get a hold on your finances, build up a savings, and slowly start implementing the “fun” stuff again!

Get creative and find ways to save. Guess what? My site is full of them

Keep METICULOUS track of your spending. See my easy method HERE. Just find a way that works for you and stick to it! Keep track of every single penny or else it won’t work.

Get your family on board. Trust me, if you try to budget but your spouse doesn’t, it WILL NOT WORK. It must be a mutual agreement. It’s a tough road, you need everyone to be on-board.

Give it time. It will take tweaking for months. And let’s be honest, every month is different! The car breaks down here, you get a bonus there, you get your tax returns here, you get a speeding ticket there…there will always be ups and downs. But stick with it and document EVERYTHING. It will start to make sense, I promise. You need to give it a good 4-6 months before things will start making sense and will seem routine.

Pat yourself on the back! Budgeting is tough, but after a few months you will be a seasoned pro. The blessings that come from making and sticking to a budget will far outweigh the annoying stuff, I promise

Click HERE for more ideas. It’s our huge post about how we were in over our heads BIG TIME financially and through discipline not only got out of debt, but have now moved into our 7 bedroom dream home.

Once you start having money left over, create savings for things you want. Add a “future expenses to save for” section to your chart and add an amount each month, and simply consider it expenses.

Just take the money out and put it in a separate savings account, or take it out as cash and stash it somewhere safe. However you do it, learn to save for things you really want and you will feel so amazing when you get it!

Another great way to set and maintain budgets is through Mint.com, a free money-managing site. It keeps track of all your credit cards, bank accounts, bills, etc…it’s pretty amazing. However, I still use a spreadsheet for budgeting because Mint lacks the ability to do a few things that I needed. Also, if you spend money in cash it doesn’t track it so you have to remember to enter it manually (same with using a spreadsheet!). Again, be sure to check out the Beginner’s Guide page that helps you with all of this, step by step!

Comments

Hi Jordan, I’m Virginie from Paris, France. Do you remember me? We spoke on the 7 accounts method that I did before falling out on you website. I am still part of your regular readers and try to continue to organize my family financials! Concerning budgeting AND keeping track on our spendings, I use one Excel sheet including our 3 check accounts : “Mr” (included grocery, gas for car), “Mrs” (included clothes, doctor, school cafeteria) and “Mr&Mrs” (only for home monthly bills). On our respective account, we save the same amount each month for “SOS account”, “Holidays account”, “Retirement account”, “Future expenses” (like taxes or electricity end-of-year regulation). I am pretty proud of that because we was able to go on holidays almost each school vacation (we are living far from our parents, we need to take train or plane to go to see them). However, the goal of putting in our “SOS saving account” 6 times what we earn each month has not at all been reached yet !! And we are still renting our home… I try to find where we could spend less but it’s hard for my husband to take big decision like selling the car, stopping ti go on holidays, stopping to spend when it’s not planned in the budget, etc…. What can I do more? What can I say to my husband? I saw you envelop method I will try it. Looking forward your answer and bravo for your bravery! Virginie

Hi, I'm Jordan

AKA, the Fun Cheap or Free Queen. As a Family Finance and Frugal Living expert, my mission is to redefine frugal and teach you to live an ABUNDANT life...on any budget. It's not only possible, it's FUN. Want proof? Read my story and see... [read more]